National Institute of Economic and Social Research

Thursday, 24 May 2012

The Immigration Minister thinks a fall in UK exports is a policy success

GDP figures today were revised down to -0.3%. As I've said before, small quarterly movements of this sort are largely irrelevant to the broader picture. What was initially a reasonably strong, albeit patchy, recovery stalled in the autumn of 2010; since then there has been essentially no growth at all. The government can and should act now.

Amid the gloom, recent statistics have contained one piece of relatively good news; exports are doing well, especially to countries outside the EU. In particular, we continue to run a large surplus on trade in services. What sort of services do we export: financial services and insurance, business services, the creative industries - and education. The Department for Business estimate that in 2008-09 the value of education and training exports was about £15 billion. This looks to be about the same at the time as our exports of food and drink, and maybe half of our exports of cars, which are now rising sharply.

Crucially, it is essential to note that the vast majority of education exports never (physically) leave the country; as the BIS figures show, they come from the spending of foreign students in this country, both on tuition fees directly and on consuming goods and services. Exports aren't all things we ship abroad; they occur when a foreign resident spends money on something produced here. When a Spanish student sips a coffee in Starbucks, we're exporting to Spain; it's real money, generating growth and employment here and improving our balance of payments.

So what are the future export prospects for this industry? They should be excellent; if the UK has a comparative advantage in anything it ought to be education, given that we speak English, we have the only university sector in the world that compares to the US, and London's position as a global hub. So you'd think the government would welcome this, and do all it could to facilitate it. After all, export-led growth is exactly what we need; both in the short term as we try to generate a sustainable recovery, and over the medium term as we try to rebalance the economy.

Of course, you'd be wrong. Today's immigration statistics showed a 21 percent fall, year on year, in student visas issued, thanks at least in part to new government restrictions. Quarter on quarter, the fall was much larger, although for obvious reasons there are large seasonal fluctuations. That didn't stop Damien Green, the Minister for Immigration, saying:

"Our tough new rules are now making a real difference with a record 62% drop in student visas in the first quarter of 2012"

Now it's absolutely clear that there has been some abuse of the student visa system, and the government has a perfect right, indeed an obligation, to take action to reduce that. But there is nothing at all to suggest that the level of abuse is on that scale. Moreover, it is quite clear from the Minister's comments that the government's current priority is not to reduce abuse, but to reduce numbers - that is, to reduce exports and hence UK economic growth and output. A year ago, this IPPR analysis argued:

"The government cannot have its cake and eat it: it will simply not be possible to reach the reduced net migration target and retain the benefits that students bring to the institutions they attend and the wider economy... It is counter-productive for proposals which are driven in large part by the government’s other policy objectives, and which could cause real economic harm to the UK, to be presented purely as a response to this concern about abuse."

Unfortunately, this is precisely what has happened. Back in August, the Chancellor argued:

"this crisis provides an opportunity to make some difficult trade-offs in favour of growth that might get parked in the "too difficult" box in calmer times."

Exactly. The government can continue to pursue economically counterproductive policies designed to reduce net migration of which its policies on student visas is one, although by no means the only one. Or George Osborne can put his policies where his mouth is, make a "difficult trade-off in favour of growth", and overrrule his Minister for Immigration.

14 comments:

Thank you Jonathan. And, in any case the longer term effect on net migration will be negligible in 3 or 4 years when the smaller number of students worhk their way through the cycle and finally leave the UK at the end of their study period. But that will be after the election, of course, so it doesn't matter.

Finally, a voice of sanity. It is about time we addressed the question of student numbers from and economic perspective, rather than simply indulge in jingoistic foreigner-bashing. When will the government realise that selling education courses to overseas students is EXPORTING. It brings much needed foreign revenue into the economy and safeguards thousands of jobs countrywide. Well done J Portes.

The Government's - specifically Mr Green's - priorities on this seem to be completely skewed; students are one of the few migrant groups who inevitably bring money into the country and hence are a vital service export for the UK. Everybody agreed that there were abuses of the 'student route' occurring previously. However, to view a drop in the student sector - and hence a potential net drop in service exports from the student sector - is a strange way to view 'success' within a flatlining economy.

Students should never have been included in the migration figures anyway, as by their very nature, they are temporary visitors to the UK and in fact a very small percentage actually stay on; only those who do should enter the migration statistics at all.

In terms of 'students' coming here to specifically to improve their English (many are in fact professional people who need to improve their language skills) the length of stay is typically very short, whilst the course values - and hence the contribution to service exports - can be very substantial. There is substantial evidence that the UK is the world's preferred destination for English study, but the hardening of visa rules has meant that all of the other major world providers of English courses - the USA, Malta, Australia, Canada, South Africa etc - are benefiting at the UK's expense.

In every other economic area, a Government may see fit to make changes to the statistical rules in order to give the public a more positive impression of 'the state of play' in that particular field; for some bizarre reason, this Government has to date not seen fit to institute what is actually a fully justifiable change by excluding students from their migration statistics. Until they do, the damage to this vital UK export seems set to continue.

You would have thought that attempting to close the massive trade deficit would be an economic priority for the government, but they are instead widening the trade deficit by attacking one of the most beneficial forms of "export" where the export never actually leaves the country and the student also has to live within the UK and contribute to the economy as they are studying.

The Tory immigration policies are little more than ideologically driven and economically illiterate posturing. It doesn't matter how hard you clamp down on student visas or how high you set the earnings barrier for UK citizens to bring their spouse into the country if the European door is left wide open. An across-the-board, arbitrary clampdown on the 20 odd percent of non-EU migrants is going to chase countless good economically productive people away, whilst any old fool can still wander in from the EU and stay as long as they like.

A sane approach would be to actively encourage immigration of intelligent, qualified people, especially in sectors where there are shortages and clamp down on only those that are gaming the system, however the Tories are more interested in producing "impressive" immigration stats that they can boast about, without consideration of the wider economic consequences.

In theory students should come to the UK, study and leave. So there effect on net migration should be negligible. However over 40,000 a year stay and find work after their course finish, often in low skilled work unrelated to their studies. The government is clamping down on this, and on fake colleges, and that has discouraged many from applying.

What is more interesting is the lag effect of changes in student numbers and net migration. Rapidly rising student numbers has temporarily increased net migration, but this should balance out when the larger numbers start to leave. The Home Office has realised that, in reverse, cutting student numbers will have a significant temporary effect on net migration. By engineering this to happen in 2012/2013, they are ensuring favourable net migration appear in August 2014 before the 2015 elections.

I don't think the governments policies on tightening student visas are too bad, but there should be a more welcoming approach to allowing the best foreign graduates to stay and contribute to the economy.

I would also like non-EEA student fees to hace VAT charged and the council tax exemption removed for non-EEA students.

Jonathan's comments clearly make sense - so much so that only someone unwilling to take a rational view of the movement of people could object to them. Clearly a student who stays on permantly or semi-permanently after their course is a migrant, and should be counted in migration figures. Equally clearly, someone who doesn't stay is not a migrant, and should not be. Including all students is a major distortion, most seriously because it prevents rational discussion of a subject which any fair-minded person can see is important.

It is essential to disentangle how we treat legitimate students from the issue of bogus students. No one is defending people who lie and cheat their way into the country. What concerns many people is the way that rules designed to prevent that are now bearing down hard on genuine students, driving them elsewhere, and seriously impacting on many honest colleges - public and private - who teach them.

The issue is not simply that the UK is overcrowded and has an immigration rate higher than that of the USA in the nineteenth century. The real issue is that 70 million people are unsustainable on this small island. (See ONS Predicted Population of the UK).

The argument that immigration is a net benefit to the UK economy is also racist. Suppose a a family comes to the UK in a prosperous time and merges with the population. What has been achieved in the long run? One more family. The GDP per head of the UK will not change. To argue that this family will always be more economically vigorous than the mass of the population is to argue that they are genetically superior.

If you want to increase GDP per head you do not add extra heads!

There are only two arguments for favouring mass immigration into the UK. The first is that overcrowding forces up asset values because housing becomes more expensive. Indeed, without immigration the population would decline in numbers and housing would become ever cheaper. Forcing up asset values in this way is stealing money from our children - current property and land owners get extra money but housing becomes too expensive for new home owners. The second argument is that a diverse population will be internationalist and globalising. This argument is equivalent to governments declaring that they do not like the way the current population thinks so they will replace them with a new set of people who are more tractable. See The Benefits of Immigration to the UK Economy.

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